Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

Q1. What do you understand by the term Strategy in the context of Business Management and Policy? And what are the stages in the formulation of a Strategy? Ans: The word strategy is derived from the Geek word strategia, and conventionally used as a military term. It means a plan of action that is designed to achieve a particular goal. Strategy is the method by which an organization systematically achieves its future objectives. Strategy is a common direction set for the company and its various components to accomplish a desired position in the future. A meticulous planning process results in strategy. The strategy is advantageous to the organization through its configuration of resources within a challenging environment. It helps to meet the requirements of market and stakeholder expectations. Strategy is a plan that is aimed to give a competitive advantage to the organization over rivals through differentiation. Creating a strategy begins with extensive research and analysis. It is a process through which senior management concentrates on top priority issues tackled by the company to be successful in a long term. Strategy is always improving and is amendable. Business strategy is the method by which an organization achieves and maintains its success. If an organization cannot identify its strategy clearly then it will struggle to survive in the competitive market. The main stages involved in strategy formulation are as follows: Stimulate the identification - Identifying useful information like planning for strategic management, objectives to achieve the goals of the employees and the stakeholders. Utilization and transfer of useful information as per the business strategies - A number of questions arising during utilization and transfer of information have to be solved The questions that arise during utilization and transfer of information are the following: Who has the requested information? What is the relationship between the partners who holds the requested information? What is the nature of the requested information? How can we transfer the information? We will learn about Henry Mintzbergs contribution to strategic planning in this section. Henry Mint berg is a well-known academician and generalist writer who has written about strategy and organizational management. His approach is broad, involving the study of the actions of a manager and the way the manager does it. He believes that management is about applying human skills to systems, but not systems to people. Mint berg states certain factors as the reason for planning failure. The factors are as follows: Processes - The elaborate processes used in the management such as creation of bureaucracy and suppression of innovation leads to strategic planning failure. Data - According to Mint berg, hard data (the raw material of all strategists) provides information whereas soft data (the data gathered from experience) provides wisdom which means that soft data is more relevant than the hard data. Detachment Mint berg says that effective strategists are people who do not distance themselves from the details of a business. They are the ones who immerse themselves into the details and are able to extract the strategic messages from it.

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Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

In 1993, Henry Mint berg concluded that planning is a formalized procedure to produce a coherent result in the form of an integrated system of decisions. The objectives must be explicitly labeled by words after being carefully decomposed into strategies and sub-strategies. Strategic implementation plays a significant role in the smooth functioning of systematic management. A task is not completed until it is implemented properly. We can define the implementation process as a link between the projects or resources and their action plans. It finally helps us in strategic evaluation. A broad implementation plan drives the strategic implementation, which in turn, drives an individual project action plan. The action plan follows a hierarchy of tasks, realistic time tables, by means of identifying proper human resource, performance measures and evaluation systems. We will discuss strategy implementation in the following three aspects: Organizational structure and systems Resource procurement Functional and operational plans Q2. What, in brief, are the types of Strategic Alliances and the purpose of each? Supplement your answer with one real life example of each. Ans: Strategic alliance is the process of mutual agreement between the organisations to achieve objectives of common interest. They are obtained by the co-operation between the companies. Strategic alliance involves the individual organisations to modify its basic business activities and join in agreement with similar organisations to reduce duplication of manufacturing products and improve performance. It is stronger when the organisations involved have balancing strengths. Strategic alliances contribute in successful implementation of strategic plan because it is strategic in nature. It provides relationship between organisations to plan various strategies in achieving a common goal. The mutual agreements between the organisations can take a number of forms and are increasing their common goals to get upper hand over their competitors. The different types of strategic alliances are listed below: 1) Joint venture Joint venture is the most powerful business concept that has the ability to pool two or more organisations in one project to achieve a common goal. In a joint venture, both the organisations invest on the resources like money, time and skills to achieve the objectives. Joint venture has been the hallmark for most successful organisations in the world. An individual partner in joint venture may offer time and services whereas the other focuses on investments. This pools the resources among the organisations and helps each other in achieving the objectives. An agreement is formed between the two parties and the nature of agreement is truly beneficial with huge rewards such that the profits are shared by both the organisations. The advantages of joint venture are: A long term relationship is built among the participating organisations It Increases integrity by teaming with other reputable and branded organisations

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Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

Helps in gaining new customers It helps in investing little money or no money It provides the capability to compete in the market with other organisations Reduces production time as the organisations are into join venture More new products and services can be offered to the customers The disadvantages of joint venture are: Sometimes the organisations deal with wrong people, thereby losing investments The organisations do not have the opportunity to take up decisions individuallyThere are risks of disputes among the organisations that lead to poor performance If the organisation enters into joint venture agreement with unprofessional selfish organisation, then it increases the risk of hurting business reputation and devastating customers trust. Example The China Wireless Technologies, a mobile handset maker is getting into an agreement with the Reliance Communications Ltd (RCom) to launch its new mobile. The joint venture between the two companies is to gain profits and provide affordable mobile phones to the market that consists of advanced features and aims to earn eight billion dollars in the next five years. The new mobile consists of dual SIM smart phone with 3G technology at a cheaper rate. 2) Mergers and acquisitions Merger is the process of combining two or more organisations to form a single organisation and achieve greater efficiencies of scale and productivity. The main reason to involve into mergers is to join with other company and reap the rewards obtained by the combined strengths of two organisations. A smart organisations merger helps to enter into new markets, acquire more customers, and excel among the competitors in the market. The participating organisation can help the active partner in acquiring products, distribution channel, technical knowledge, infrastructure to drive into new levels of success. With the perception of the organisation structure, here are a few types of mergers. The different types of mergers are: 1. Horizontal merger The horizontal merger takes place when two organisations competing in the same market join together. This type of merger either has a maximum or minimum effect on the market. The minimum effect could also be zero. They share the same product line and markets. The results of the mergers are less noticeable if the small organisations horizontally merge. Consider a small local drug store that horizontally merges with another small local drug store, then the effect of this merger on drug market would be minimal. But when the large organisations set up horizontal merger, then higher profits are obtained in the market share providing advantages over its competitors. Consider two large organisations that merge with twenty percent share in the market. They achieve forty percent increase in the market share. This is an added advantage of the organisations over its competitors in the market. 2. Vertical merger This involves the union of a customer with the vendor. It is the process of combining assets to capture a sector of the market that it fails to acquire as an individual organisation. The participating organisations determine the intentions of joining forces that will strengthen the current positions of both the organisations and lay basis for expanding into other areas. The purpose of a vertical merger is to build the

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Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

strengths of the two organisations for an effective future growth. In order to explore new methods of using existing products to create a new product line for wider markets, it is also important to consider the assets like property, buildings, inventories and cash assets. The vertical merger involves careful planning. 3. Market-extension merger It is the process of merging two organisations that sell same products in different geographical areas. The main purpose of this merger is to make the merging organisations to achieve higher positions in bigger markets and ensure a bigger base for client. 4. Product-extension merger Most of the organisations execute product extension merger to sell different products of a related category. They serve the common market. This merger enables the new organisations to pool their products to serve a common market. 5. Conglomerate merger This merger involves organisations alliance with unrelated type of business activities. The organisations under conglomerate merger are not related either horizontally or vertically. There are no important common factors among the organisations in terms of production, marketing, research, development and technology. It is the union of different kinds of businesses under one management organisation. The main purpose of this merger is to utilise financial resources; enlarge debt capacity and obtaining synergy of managerial functions. The organisations do not share the resources; instead it focuses on the process of acquiring stability and using resources in a better way to generate additional revenue. Acquisition is the process of purchasing an organisation by another organisation, either through the purchase of its shares or assets. Massive growth can only be achieved in less time by buying other organisations. Acquisitions have become the major entity for growth in market these days. Most of the organisations choose to grow by acquiring other organisations to increase market share, gain access to new technologies, achieve synergies in the operations, to develop distribution channels, and to obtain control of undervalued assets. There are many risks in acquisition like clashes in the culture of organisation, key employees may leave, synergies may fail to emerge, assets may be less valued than perceived etc. 6. Collaborations and co-branding - Collaboration is the process of cooperative agreement of two or more organisations which may or may not have previous relationship of working together to achieve a common goal. It is the beginning to pool resources like knowledge, experience and sharing skills of team members to effectively contribute to the development of a product rather working on narrow tasks as an individual team member in support to the development. Such collaborations are the foundation for concepts like concurrent engineering or integrated product development. Collaboration is a win-win methodology. It means that both the organisations insist upon each other to gain equal profits with no negative attitude of acquiring each others possessions. Effective collaboration can be obtained by the following actions: The organisations must get involve in the process from the beginning and avail the necessary resources for collaboration. a. The work culture in the organisation must encourage teamwork, cooperation and collaboration. b. There must be effective team work and cooperation among the employees of both the organisations to achieve the goal.

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Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

c. Systematic approach of product development process must be based on sharing of information, technology etc. Co-branding involves the process of combining two or more brands into a single product or service. It is becoming a positive way to associate different brands and develop a strong brand in the market. It creates synergy among the various brands. An organised co-branding strategy leads the co brand partners to a win-win situation and helps in realising large demands in the market. The co-branding agreement includes the important aspects such as rights, obligations, and restrictions that are abiding to both the organisations. It also includes important provisions and the needs must be carefully drafted to provide clear guidelines to the involved organisations. The organisations form co-branding to accomplish many goals which include expansion of customers, obtain financial benefits, respond to the needs of customers, strengthening its competitive position, introducing new product with strong image and to gain operational benefits. It is more frequently used in the field of fashion and apparels. It can also be used for promoting campaigns, using cartoons on T-shirts, logos, distributing through branded retailer etc. Example The sportswear giant Nike formed co-branding agreements with Philips consumer electronic products. The Philips electronic products will contain Nikes logos and it is mainly marketed in United States since the market share of Philips is not much impressive. The newly introduced digital audio player and portable CD players of Philips will be unveiled with the Nike logo to enhance profits in the market share in United States. 7. Technological partnering - It is the process of associating the technologies of two different companies to achieve a common goal. The two organisations work as coowners in business and share the profits and losses. The technologies of individual organisations are shared to achieve desired outcome. The required resources like knowledge, machinery, and expertise are collaborated between the organisations. Example The software giant, Infosys Technologies Ltd. has entered into partnership with US based NVIDIA, GPU inventor and the world's visual technologies giant. The purpose of this partnering is to develop NVIDIA CUDA (Compute Unified Device Architecture). This technology is viewed as the next big revolution in the field of technology in lending high performance in computing. The software helps the developers of various applications to tap into the previously uncultivated power of the GPU. This will enable certain applications to achieve high performance. The capacity of CUDA is expected to multiply fifty times the performance of existing computing and reduce the run time to advance the user enterprise.

Q3.

What is a Business Plan? What purpose does it serve?

Ans: A business plan is a complete internal document that summarises the operational and financial objectives of a business. It also contains the detailed plans which show how the objectives are being accomplished. An accurately made business plan helps to allocate resources properly, to handle unforeseen complications like financial crisis and to make good business decisions. On the other hand, business venture is a start-up enterprise which is formed with expectations and plans of achieving financial gain. Once the need of the organisation is identified, it can be started by a small investor that has valuable resources and time. Other investors involve S.K Roll No. 0000000000, Page 5 of 7

Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

themselves by providing support for further development of the venture once the business is created. In the case of establishing a business venture, a formal business plan is written to outline the purpose and mission of the business for the future use. Every entrepreneur creates a business plan and its completion will determine the feasibility of the plan. The strategies for creating a business plan are as follows: Define your business vision You must clear the following queries while defining the business vision: o Who is the customer? o What business are you in? o What do you sell (product/service)? o What is your plan for growth? o What is your primary competitive advantage? Make a list of your goals You must create a list of goals after proper research. In case of a start up business, more effort must be put on the short-term goals. Certain things must be kept clear before setting up your goal. They are listed below: o What do you want to achieve? o How much growth you want to achieve? o Describe the quality and quantity of the service and the customer satisfaction levels? o How would you describe your primary competitive advantages? Understanding the customer Understanding the customer is essential for a perfect business plan. You must understand the customer in terms of the following factors: o Needs The following customer requirements should be understood clearly: What unmet needs do your customers have? How does your business meet those needs? o Problems Customers buy things to solve their specific problems. Always be specific about the advantages of the product/services of your business which resolve the customers problems. o Perceptions Always try to know the perception of the customer. Clarify the doubts of the customer regarding your profession and the products/services of your business. Learn from your competitors You can learn a lot about the business and the customers by looking at the business of your competitors. Always get the answers of the following questions which will assist you in learning from your competitor and focusing on your customer. o What do you know about your target market? o What competitors do you have? o How are competitors approaching the market? o What are the competitors weaknesses and strengths? o How can you improve upon the competitions approach? Resolving financial matters Several questions might arise when we need to make financial decisions. They are as follows: o How will you make money? o What is the profit potential of your business? o You can resolve the financial issues by taking smart strategic investment decisions. S.K Roll No. 0000000000, Page 6 of 7

Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

Identify your marketing strategy Identifying the marketing strategy is another essential skill which you must have. The following are the four steps to create a marketing strategy for your business: o Identify all the target markets o Qualify the best target markets o Identify the tools, strategies and methods o Test the marketing strategy and tools

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